Competitive intensity usually reduces average industry
profitability (Porter, 1980; Slater, 1993). It has the effect of
reducing pioneering advantages developed through lead time.
Therefore, when competitive rivalry is low, the initial
pioneering advantages developed during lead time are likely to be
more sustainable. Increased competition more quickly reduces
initial advantages and creates pressure to reduce prices and
profitability.
Hypothesis 4a: Competitive rivalry affects venture capitalists'
assessment of profitability.

Hypothesis 4b: Venture capitalists' assessment of
profitability is significantly higher for low levels of
competitive rivalry than for high levels of competitive rivalry.

Questions of scope are central to the development of a
venture's strategies (Abell, 1980). Much of the conventional
wisdom of earlier entrepreneurship literature advised ventures to
pursue narrow or focused strategies (e.g., Low & MacMillan,
1988). However more recent studies utilizing large databases such
as PIMS show new ventures that are both more aggressive and more
broad than incumbents, display superior performance than those
targeting narrower segments (e.g., Tsai, MacMillan & Low,
1991).

However, Stearns, Carter, Reynolds & Williams (1995)
hypothesized broad strategies to be superior to narrow strategies
yet were unable to find support for their proposition.
Apparently, simplistic over generalization of scope strategies is
dangerous (McDougall, Covin, Robinson & Herron, 1994). Timing
of entry dictates the industry structure faced by new ventures
(Lambkin, 1988; Miller, Wilson & Gartner, 1987). Pioneers
enter a new industry with potential for high growth and late
followers enter a mature industry with limited growth. Given this
assumption about the relationship between timing of entry and
likely industry structure, Stearns et al.'s (1995) finding of a
significant interaction between scope and industry structure may
be evidence of an interaction between scope and timing of entry.

McDougall, et al. (1994) found new ventures in high growth
industries enter the market on a larger, more aggressive scale
than new ventures in low growth industries. Lambkin (1988) also
found pioneer-generalists (broad scope) to most likely display
the highest level of long term performance.

Lieberman and Montgomery (1988) believe an important research
priority is the focus on the evaluation of specific entry
mechanisms, rather than on general investigations of timing of
entry. This concept of 'mimicry' may help integrate Vesper's
(1990) entry wedges into a conceptual framework of entry
mechanisms. Entry wedges are competitive weapons that may be used
to enter an industry, and comprise one of the few attempts to
explain entry mechanisms. High mimicry represents a high level of
imitation of others' entry wedges. This concept is useful in
explaining franchising. A franchisee buys and/or rents from the
franchisor the use of hopefully a proven proprietary entry wedge
and competitive shield (Vesper, 1990).
A "low mimicry" entry wedge may be achieved through
offering an innovative product or service and/or introducing a
marketing innovation that allows the entrant to overcome barriers
to entry (Porter, 1980; Abell, 1980; Robinson, Fornell, &
Sullivan, 1992). Innovation need not be a technological
breakthrough (Karakaya & Kobu, 1994) or the creation of a new
industry with a product's introduction- both developments are
extremely rare (Vesper, 1990) but would be considered the extreme
case of low mimicry. This concept of 'low mimicry' seems to
support Vesper's (1990) 'new product' entry wedge.

Despite the cost to innovate being typically higher than the
cost of mimicry (Spital, 1983), high mimicry sets parameters for
competitive behavior. A low mimicry entry wedge has no such
restrictions. An uninhibited choice of strategy appears better
suited to the emerging market. Miller, et al. (1987) propose that
the pioneer typically faces an emerging and growing market An
emerging market is characterized by few competitive rules based
on high technological and strategic uncertainty (Porter, 1980).
This environment provides the pioneer a window of opportunity to
introduce something new and possibly develop the rules of the
industry to corporate advantage. Therefore, pioneers are usually
more interested in entering with a new technology and then
protecting their unique position and first mover advantage,
rather than imitating others (Porter, 1980).

The franchise imposes a cost for the rent of a proven formulae
and places restrictions on aspects of operations, marketing and
expansion documented in the franchise agreement. The added cost
and restrictions are expected to negatively affect profitability
for the pioneer. Whereas a proven proprietary entry wedge and
competitive shield are of greater value to a later entrant as
they typically face more intense competition (Porter, 1980).

Hypothesis 6b: For ventures with high entry wedge mimicry,
venture capitalists' assessment of profitability increases with
later entry; for ventures with low entry wedge mimicry, venture
capitalists' assessment of profitability decreases with later
entry.

Success is more likely to be achieved by those entering an
industry in which the venturers have prior experience (Roure
& Madique, 1985; de Koning & Muzyka, 1996). Roure and
Maidique (1985) found successful founders had experience in rapid
growth firms that competed in the same industry as the start up.
Opportunities are likely to occur too quickly to be able to be
grasped by someone from outside the industry, they must posses
the necessary skills a priori (Feeser & Willard, 1990).